Operating Expenses Changes and Artificial Earnings Management

The purpose of this paper is to investigate the effect of cost of good sold (CGS) and selling, general & administrative (SGA) expenses changes on artificial earnings management. We use 88 listed firms from 12 industries on Tehran Stock Exchange from 2005 to 2014. We provide the theoretical foundations and collect data by Archival research method. To analyse the research data, we apply a multivariable regression model. The results show there is a negative and significant relation between cost of good sold changes and artificial earnings management (accruals- based-earnings management). In the other words, the evidence in this study explains whenever because of rising inflation, the cost of good sold increases then it is not possible to maximize earnings by artificial earnings management (accruals-based earnings management). In addition, based on the research results, selling, general & administrative expenses changes are associated positively and significantly with the artificial earnings management. It means that firm’s managers can maximize earnings by artificial earnings management when selling, general & administrative expenses increase.